First Republic Bank, the fourth-largest non-agency jumbo lender in America, is exploring strategic options, including a sale and a capital infusion, and is expected to attract interest from larger rivals, Bloomberg reported on Wednesday, citing anonymous sources with knowledge of the matter.

No decision has been made, and the bank can remain independent, people who requested anonymity for discussing confidential information said. According to Bloomberg, the bank is also weighing options for shoring up liquidity. 

In addition, the Wall Street Journal reported on Thursday morning that JPMorgan, Morgan Stanley and several other big banks are discussing a potential “sizable capital infusion,” people familiar with the matter said. A full takeover is also a possibility, but looks unlikely at this point.

Amid the liquidity problems affecting regional banks in the past week, California-based First Republic announced fresh access to capital from the Federal Reserve Bank and JPMorgan Chase & Co. on Monday, resulting in $70 billion available to fund operations.  

In a joint statement, Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president, said the bank continued to fund loans and process transactions. 

“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” the executives said.

Still, on Wednesday, S&P and Fitch Ratings downgraded the bank to “junk.” Among the reasons for a speculative investment grade, First Republic’s deposits are concentrated on wealthy customers who are uninsured and less sticky in times of stress – the same problem that led Silicon Valley Bank and Signature Bank to collapse. 

The bank, however, says its consumer deposits have an average account size of less than $200,000, and the standard insurance amount by the Federal Deposit Insurance Corporation is $250,000. The bank said business deposits’ average account size is less than $500,000.

Meanwhile, First Republic had 61% of the book value of its investment portfolio in municipal securities at the end of 2022, a higher share than its peers. According to Fitch, these assets have credit quality but are relatively illiquid compared to U.S. treasury and agency securities.  

First Republic share was trading at $20.53 on Thursday morning, down 34.10% from the previous closing. 

The jumbo market

In the mortgage space, a potential buyer of First Republic Bank will inherit a growing non-agency jumbo loans production while the overall market has been in a downward spiral. 

According to Inside Mortgage Finance data, the bank was the only one to increase its volume among the top 10 non-agency jumbo mortgage producers in 2022. First Republic originated $31.6 billion last year, up 8% compared to the previous year. The estimated total for all lenders was $410 billion, down 36.3% in the same period. 

First Republic reached a 7.7% market share in the space last year. Wells Fargo & Co. is the leader in the category with an 11.1% market share, followed by Chase (9.3%) and Bank of America Home Loans (8.1%). 

Focusing on jumbo loans (greater than $726,200) makes sense if considering First Republic’s customer base. Founded in 1985, the bank offers private banking, private business banking and private wealth management. According to the bank, no single sector in the U.S. economy represents more than 9% of total deposits, with the largest being diversified real estate



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After pulling back at the start of the year, homebuilders jumped back in during February as homebuyer demand and builder confidence trended upward.

Homes were started at an estimated annual pace of 1.45 million in February, up 9.8% month over month, according to a report released Thursday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Despite the month-over-month increase, housing starts were still down 18.4% year over year thanks to the annual pace of single-family housing starts dropping to 830,000, a decline of 31.6% year over year.

“The pace of new construction had been picking up over the past two years. In 2022, a total of 1.55 million new housing units were started, which is a little higher than the average annual new starts over the past five decades,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “However, the amount of new housing being built is still far below what is needed to meet demand and help moderate high prices.”

Unlike last month, multi-family housing starts were up both month over month and year over year, rising 24.1% and 14.3%, respectively, to a pace of 608,000.

As the pace of housing starts rose in February, so did the pace of completions, which were up 12.2% month over month and 12.8% year over year to a pace of 1.557 million. Although the pace of single-family completions was up 1.0% from a month ago, the pace of 1.037 million is still down 3.6% compared to a year ago. The pace of multi-family completions (509,000), on the other hand, posted massive increases both month over month and year over year, at 44.6% and 72.0%, respectively.

“Completions have outpaced starts since July 2022 and that will likely continue to put downward pressure on the number of single-family homes under construction. Builders may focus on completing existing projects, rather than starting new ones,” Odeta Kushi, First American’s deputy chief economist, said in a statement. “As the inventory of new, completed homes rises, it will provide some much-needed relief to a supply-starved market and put downward pressure on new-home prices.”

Although homebuilder sentiment in sales expectations for the next six months did drop slightly in the most recent  National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report, building permits are starting to trend upward, at least on a monthly basis. In February, building permits were issued at an estimated annual pace of 1.524 million, up 13.4% from a month prior, however this is still down 17.9% year over year.

“Single-family housing permits, a leading indicator of future starts, also increased 7.6% compared with the previous month,” Kushi said. “The uptick in single-family housing permits and starts aligns with the recent increase in homebuilder sentiment.”

Despite this uptick, experts are still just cautiously optimistic thanks to the volatile mortgage rate environment and financial system stress.

“If interest rates come down, homebuilders could find it easier to finance new projects. But there are other challenges,” Sturtevant said. “Banks, and particularly regional banks, have been under pressure after the recent collapse of Silicon Valley Bank and Signature Bank. Homebuilders often depend on financing from these regional banks. Instability or other disruptions in the banking industry could reduce building activity this spring just as homebuilders want to be ramping up.”

Regionally, housing starts were up month over month in the South (2.2%), the Midwest (70.3%) and the West (16.8%) but were down 16.5% in the Northeast. On a yearly basis, homebuilders’ housing starts were down in all regions, with the Northeast posting the largest annual decline at 20.9%.

The increase in housing starts is reflected in the homebuilder outlook recorded in the BTIG/HomeSphere State of the Industry Report.

According to the survey, 51% of builders saw a yearly decrease in sales last month, down from 54% in January. Despite a 51% yearly decrease in orders, builders again reported a slight improvement in performance relative to expectations, with 27% of respondents reporting that sales were better than expected, and 21% reporting that sales were worse than expected. These metrics improved from 21% and 38%, respectively, in January.

The BTIG/HomeSphere study is an electronic survey of approximately 50-100 small- to mid-sized homebuilders that sell, on average, 50-100 homes per year throughout the nation. In February, the survey had 98 respondents.

While sales are improving, builders are still using incentives to generate traffic, however 27% of builders reported that they raised some, most, or all base prices in February. In addition, 23% of builders reported increasing some, most or all incentives, down from 30% a month ago.

“Although still sluggish, business conditions are showing some clear signs of improvement as we begin the spring selling season,” Carl Reichardt, a BTIG analyst, said in a statement.



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Eric Quinn turned $500 into over forty rental properties without rich relatives, a winning lottery ticket, or a magic genie. Like many investors after the 2008 crash, Eric was left flat broke, with an unbelievably high adjustable mortgage rate, hundreds of thousands in credit card debt, and just a few hundred dollars to his name. His “bed,” a pile of clothes in his parents’ house, was the one thing that could comfort him while digging himself out of the housing market hole he fell into.

Now, Eric’s life looks a little different. With dozens of cash-flowing rental units, even Eric questions how he got here. His story includes selling snakes, dealing drugs, storage wars, terrible real estate deals, and bad debt, but at the end of it, thanks to making the perfect pivot, he came out on top. He made almost every real estate investing mistake in the book, from buying a property he knew nothing about to purchasing fifteen rental properties in one month (don’t do this) and taking risks that were never worth the reward.

But Eric isn’t here to cry over spilled milk. Instead, he’s here to share EXACTLY how he made it out of a horrible situation and turned his life around to build wealth, have time freedom, and live without worrying. You might be feeling a bit like Eric did, and if you want to know the mistakes you should avoid and the moves you should make to get in a better position, tune into today’s episode!

David:
This is the BiggerPockets podcast. Show 740.

Eric:
I had 10 to 15 grand a month in bills, 150 grand in credit card debt, plus the house that I couldn’t afford. And I had 500 bucks off of my name. And it’s the cliche story of I called or I did this thing 50 times, right? So I heard about storage units and I had no idea how I learned about storage units, and so I called 47 storage unit facilities. In that storage unit, I said, “I don’t know what I’m doing, but I’m just going to show up.” I had literally 500 bucks left to my name. I spent $450, bought three storage units, and in two weeks we made about 2,000 bucks.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets podcast. Here today, as you can see, with a little change of scenery, I’m joined by my co-host Henry Washington and our guest, Eric Quinn. Today’s show is absolutely staggeringly incredible. You’re going to love this show. Our guest is Eric Quinn. Eric has owned over 40 rental properties, done 15 flips, and currently sits at 15 sober living facilities, seven single family houses, a couple of duplexes, and a mix of some small commercial office and apartment complexes. Eric has a wide variety of sales experience, including door to door sales, as well as gym memberships, storage unit auctions, and thrift stores, to restaurant equipment.
The focus of today’s show is going to be how you can pivot just like Eric did, looking for open doors that should be the focus of any successful business owner. Not being afraid to fail was Eric’s way out of hardship, and we believe that that will work for a lot of other people. And you are going to hear how Eric has lost it all, not one or two times, but four separate times, bouncing back every one of them to end up with a successful brokerage and an investing business that has more than tripled over two years. Each of these chapters plays a critical role in where you’re at today, and we are excited to dig in, Eric.
But before we get into the show, today’s quick tip is if you fail, you will learn, and that is part of the process, and it may hurt, but that’s okay because success hurts. If you’re a more experienced person, keep your attention on finding the open doors that are in front of you. Sometimes when our ego gets too big, our pride gets too big, we take an L and we want to close up and hide from the world, and you end up missing the open doors that are all around you. This was something we learned in basketball. When you’re swarmed by defenders, which can be losses in business, you tend to just want to stare at the ball, but you need to keep your head up and look for open players around you and opportunities. You got to practice doing it, but it makes a big difference when you do. Henry, what was your favorite part of today’s show?

Henry:
Yeah, I think one of the best parts about the show is how Eric talks about how he never let a situation, no matter how terrible it was, stop him from continuing to think the right way. So when he falls on his face, he talks about, “Hey, I’m going to take this next round of money, this next endeavor, and I’m going to put everything I have into it.” And it takes a lot of tenacity to be able to fall on your face and then still think about how can I invest in something that’s going to return, that’s going to have a return for my family?
A lot of people fall on their face and then that’s the end of their journey, or they don’t start looking for those open opportunities, but he did the exact opposite. And in fact, had several conversations with his wife throughout the course of his investing career about, “Hey, remember how we’re just starting to get back on our feet? Great. I need to take the majority of that money and go invest it into something else.” And it takes guts to do that and strong support from your spouse, and it was just enjoyable to hear those stories.

David:
Yeah, this was a great episode. I’m going to dub this the feel good episode of 2023 because if you have ever had a loss yourself, you’re going to feel very good about yourself after hearing everything that Eric has already gone through. Let’s get into it.
Today’s guest is Eric Quinn. Eric has owned over 40 rentals, done 15 flips, and currently sits with 15 sober living facilities, seven single family properties, a few duplexes, and a mix of some small commercial offices and apartment properties. Eric has a wide variety of sales experience that ranges from door to door sales to selling gym memberships as well as storage unit auctions. That sounds interesting. We’re going to have to dive into that. And thrift stores, to restaurant equipment.
We’re going to be focusing on how pivoting and looking for an open door was his focus to building the business he has today. Not being afraid to fail was the way out of the hardships he encountered and how he lost it all not one or two times, but four separate times and bounced back to have a successful brokerage and investing business that has more than tripled in two years. Each of these chapters plays a critical role in where you’re at today, Eric, and we are excited to dig in. But before we do, a quick fun fact. Word on the street is he used to sell snakes to drug dealers as a kid to make money.

Eric:
Yes.

David:
Okay. We need to start with that. Tell me what environment were you in?

Eric:
So I believe the statute of limitations has run out, so we can freely speak about this now. And I believe I was probably, I don’t know, 10 to 12 years old. I was growing up in Florida and to make some extra money, I was always obsessed with reptiles, turtles, and snakes like that. We would go or I would go and buy these ball python snakes for eight to 10 bucks a piece at the time, and then I would go into the notoriously known area, I don’t know what my parents were thinking, and I would sell snakes. And so what I would do is I’d knock on the door and it was very weird me being there and they’d say, “Why are you here?” And I’m like, “Well, don’t mean any harm or anything, but the guy down the street, we’ll call him Bill, just bought a couple snakes from me, and I heard he’s kind of your competition. So I wasn’t sure if you wanted a snake as well.”
And he’d be like, “How many did he buy?” And I’d say, one, two, three, four, whatever the number was. And then they would always buy double and I’d sell them for 50 bucks, 100 bucks, 125, and I would slowly stockpile to buy more animals for myself, because as a kid, my mom made the great mistake of saying, “You can have as many turtles and snakes as you want as long as it doesn’t smell.” So I sold snakes to feed my own hobby and addiction, if you will. So yeah.

David:
So I got to ask, these drug dealers, this was the ’80s, right?

Eric:
Early ’90s.

David:
Okay. Early ’90s. Were snakes and reptiles the pit bulls of the ’90s? What was the [inaudible 00:06:18]?

Eric:
They were. Yeah, so these snakes, I shouldn’t say they were baby ball pythons. They were anywhere from four to six feet. They had some size to them, and so yeah, they’d wear them around their neck, they would display them in their cages and tanks and they would-

David:
This was a sign of wealth and affluence?

Eric:
Yes.

David:
This was not for protection.

Eric:
No, it’s a snake.

David:
Because that’s where my mind went first. It’s like, is this an intimidation thing?

Eric:
Yeah, guard snakes were not a thing then.

David:
Okay. So you can’t afford a big gold chain, or you’re smart enough to recognize that’s probably not a smart advertisement if you’re in the-

Eric:
In that profession.

David:
… illegal pharmaceutical distribution business. So instead, you put a snake around your neck.

Eric:
That’s right. Yeah, exactly.

David:
As a selling card. And that was your introduction into sales.

Eric:
Yes. Yeah, and then we moved to selling turtles on the side of the road and stuff like that as well. Yeah.

David:
Yeah, shout out to Ryan Murdoch, Brandon Turner’s, I don’t even what you call him at this point, but at one point his assistant. He loves animals too. And I won’t go here today, but I’ve always been fascinated with the people that are fascinated with reptiles because I never had that thing. It was never a thing where I saw them and thought, “That’s really cool.” I had a dinosaur phase when I was seven, but it never evolved into what you guys do. So I understand you had a very bumpy introduction to real estate. It was probably a little bit different than the illegal underground exotic reptile industry. Tell me about your first attempt buying a home. When was this and what happened?

Eric:
Yeah, so my first personal house was ’06. My interest rate was like 8.75, and it was the time where they’re like, “Oh, you have a pulse. Here’s a mortgage. How much money do you make? Whatever you…” So we bought the house in ’06 and… I bought the house in ’06, and ’08 is when things hit the fan. I don’t know, do you want me to go into that right now too?

David:
Well, we understand in 2008, the mortgage industry corrected and a lot of properties went into foreclosure, but did you just pay too much for a house or the mortgage that you couldn’t afford, or was there more to it?

Eric:
Yeah, so there’s a lot more to it. I lost my job, and so we spiraled adjustable rate, ARMs, adjustable rate mortgages, and ARMs. When we bought the house, it was 8.75. It got to a point where it was like 24.75. Yeah, we went into foreclosure four times and saved it every time. Loan modifications, double loan modifications, that paperwork glitches. And I can dive into that. It’s honestly what saved our house, but it was super terrifying. I lost my job in ’08 and I met my wife two weeks later and I looked at her and I said, “Hey, I’m going to lose everything. This is not good. I don’t have any savings. My bills are 10 to 15 grand a month. I have no 401k, I have nothing. I’m going to lose everything. And so you should leave.” And she looked at me and she said, “I kind of like you, so I’m in. Let’s figure it out.” And I’m like, “You’re crazy. It should have been a red flag.” But we’ve been together 15 years now and it’s been a wonderful ride. So yeah.

David:
I think you got a real one there. There’s a blessing in disguise if you think about that, which seems to be the case with a lot of your story, that if you had met somebody when everything was going great and everything you touch is turning to gold, you’re always wondering, does this person love me or do they just love what I can give them? But if you realize if your relationship was built with your wife at a low point in your life, that’s a amazing way to start the foundation you’re going to have. And she also got to see a side of you that a lot of people probably didn’t, which is just your tenacity.

Eric:
Yeah, it was definitely a tenacity and a very humbling event. I worked in some sales positions prior to that, and I will say that my ego was probably got the best of me quite a bit. I was not a wonderful person, let’s just say it that way. I was very egotistical. I don’t know if I can say (beep) canoe, but that would be a good example of that.

David:
[inaudible 00:09:55]?

Eric:
Yep. So it was very humbling. I was put on my knees. And so we were able to grind through that, and it’s done pretty well so far.

David:
Yeah, that’s such an important part of a successful journey. One of the things I’ve noticed with anyone who gets into real estate sales, real estate investing, any kind of entrepreneurship, there’s this expectation that you’re going to get in and you’re either good or you’re not good. You’re going to either crush it or you’re going to suck. And if you suck, you should move on. If you crush it, you’re there. And in my experience, it’s almost always a cycle of crush it, get really high like Icarus, you crash, then can you pick yourself up and go up again? In the second iteration, you’re going to fail too. It is a series of successes and failures where every single failure, you have to be tough and get up, and every single success, you have to learn to be humble.
And people don’t walk into it expecting that. They think that it’s just going to be like, once I get the plane off the ground, I’m going to coast and I’m going to retire and live on the beach and drink my Mai Tais and watch Dancing with the Stars after three years of hard work. And nothing really works that way, whether it’s your fitness goals, whether it’s your relationship, whether it’s finances. So how did you start digging yourself out? Because this sounds like financially, this was the first time that you experienced that crash. And when you’re flying high and you have a crash from a height, it hurts.

Eric:
Yeah, so this actually wasn’t the first time. So this was probably now second, almost third time. First time was in Houston with Enron. Enron went bankrupt. It didn’t affect most of the country, but I lived in Houston at that time, and so it was miserable. You had these execs that were making 80 to 150 to 300 grand working at McDonald’s. So it was bad. I was so poor at one time that I slept on a pile of clothes at that time. So I moved to Colorado in my mom and dad’s basement. And so when I was… Fast-forward to ’08, when I lost everything this time, I had 10 to 15 grand a month in bills, 150 grand in credit card debt, plus the house that I couldn’t afford. And I had 500 bucks off to my name, and it’s the cliche story of I called or I did this thing 50 times.
So I heard about storage units and I had no idea how I learned about storage units. This was before the TV show by a couple years, grace of God, let’s call it, the universe opening a door for me. And so I called 47 storage unit facilities. Most of them had auctions, but they were all far in the future. There was one that had one the next day. In that storage unit, I said, “I don’t know what I’m doing, but I’m just going to show up.” I had literally 500 bucks left to my name. I spent $450, bought three storage units, and in two weeks we made about 2,000 bucks.

David:
Now, when you say you bought a storage unit, you’re saying you bought the stuff inside the storage unit?

Eric:
Correct. Yeah. Well, I was way too poor and bad credit. I couldn’t buy anything. I could barely afford Taco Bell at that time.

Henry:
So I’m doing the math. 450 bucks for the storage units. You had 500, so you were left with 50-

Eric:
Yeah, 50 bucks.

Henry:
… to live life with.

Eric:
Yeah. So that covered gas, hopefully. And then back then, McDoubles at McDonald’s were still a dollar, tacos were 50 cents, and ramen noodles. My wife and I… It’s funny, I was looking on Facebook the other day and there was a cart and we’re like, “We got food for a month.” And it was $280 and it was all just crap, like 50 cent banquet meals and stuff like that, because that’s all we could do. The funny thing is one of the storage units that I bought out of the three was filled with prison letters, adult toys, if you will, and broken furniture and heroin needles, unfortunately. And one of the greatest things about this is my wife and I would sort these things together and then she’d go down the rabbit hole of reading prison letters, and it was… She’s like, “We have so much to be thankful for.”

Henry:
I was going to say, that’s some perspective right there. Those, I call them God winks. That little, you’re doing exactly what you’re supposed to be doing in that moment when you find something like that that reminds you that even though things may seem not great, things could be a lot worse. That perspective, I’m sure, was grounding.

Eric:
Yeah.

David:
So you’re sleeping on a bed of clothes.

Eric:
So at this time, I got a bed, so I was 18, 19 when I had [inaudible 00:14:09].

Henry:
Did you get it out of a storage unit?

Eric:
That was later. But we made about two grand, short story of that. Those first three, I made two grand in two weeks, and so I said, “I’m in.” And we bought about 1,000 storage unit contents over probably 10 years.

Henry:
Was this at the time that that show was really popular that was going around?

Eric:
No. So it was before. So that happened about two years afterwards. I actually opened a thrift store and then this show came out. I’m like, “Come on, are you kidding me?”

Henry:
Here comes the comp.

Eric:
And that was exactly it. So these auctions went from three to 10 people there. The very next day, there was 400 to 500 people. So a unit that’d go for five bucks sold for 600. The nice thing was is that for me, we saw the thrift store and we saw the potential. I set the thrift store up for 500 bucks because I bought everything used, and we ended up selling the thrift store, I think, for 30, 40 grand. And when we pivoted and parlayed.

Henry:
So when you say you set up a thrift store, so that’s how you were dispositioning the things that you found?

Eric:
Yep.

Henry:
Was it a physical thrift store? Were you selling online?

Eric:
Yeah. So we would take all the knickknacks and actually put it in the thrift store, and then anything that was worth any kind of money, we would sell it on Craigslist. So Craigslist honestly saved my life. I have a incredible love for Craigslist. Now, it’s Facebook Marketplace. Things have transitioned and changed. But so we sold everything on Craigslist and eBay.

David:
I don’t know, did we get into what brought the idea into your head to buy self storage units when you had $50 left?

Eric:
So I honestly have no idea where it came from. I have thought a lot about this, but I have no idea. It was one of those things that I liked selling things on Craigslist, and I was like, “Well, I’m desperate. I need to buy more things. How do I get more things?” But I honestly have no idea where I came-

David:
Just interesting that when you only have $500 to your name, rather than going into a circle the wagons, defensive minded, cling to whatever, or have as your thought was, “Well, what could I invest this into that could get me a better return?”

Eric:
I didn’t have an option. There’s nobody hiring. I don’t have a college education. I was going to lose everything. So I had to figure it out. So it was either that or drug dealing, and I didn’t want to sell drugs anymore.

Henry:
[inaudible 00:16:22] snakes.

Eric:
Yeah, I could’ve gotten snakes, but 500 bucks doesn’t buy a lot of snakes. So I’m thinking about it, and it might’ve been somebody buying something from me off of Craigslist, but I’m not 100% sure where that idea came from, to be honest.

Henry:
How did… This story mirrors so many investors where it’s a lot of us got started flipping stuff. Yours was just flipping through storage units, mine was flipping stuff from auctions. But how did the conversation go with your wife when you said, “I need to take the majority of our last $500 and invest in this thing I’ve never done before.”?

Eric:
Yeah. So I don’t know why she’s so supportive and what she saw in me. We’re living by this motto and ethos that as we’re growing this business, I want to believe in you even if you don’t believe in yourself yet. And the yet is the biggest part. And there’s been critical times in my life where somebody believed in me and maybe they didn’t say, “Hey, I believe in you.” But they were there and they supported me. So there is this… While we’re going through this thing, everything in our house was for sale. There was times we didn’t have a couch, we didn’t have a kitchen table. We’ll go back to the bed thing. So when I was 18 to 20, I couldn’t afford a bed, so I slept on a pile of clothes. And when I met my girlfriend, now wife, I said, “Hey, this is what my past is. I promise you, no matter how bad this gets, I will never not have you sleep in a bed.”
So that’s what we did. So the only thing that was not for sale in our house was our bed, because that’s our bed, but everything else was for sale. There’s times where my son would come into town and he thought we were rich because he was young and he had a new bedroom set every time because the moment I dropped him off at the airport, I’d immediately listed his bed on Craigslist. So yeah, everything was for sale. We had a new couch every other week.

Henry:
My wife would tell you that everything in our life is for sale right now still. There’s always a price. There’s always a price. So Storage Wars comes out, increased competition, things are going for more money. Obviously, you had to pivot yet again. So what did that pivot look like? Where did real estate come into play?

Eric:
Yes. So not yet. I pivoted into restaurant equipment. So I had a friend that does stainless steel manufacturing. He’s a large distributor, and he called one day, he said, “Hey, are you still selling stuff on Craigslist?” I’m like, “I am.” He said, “I need you to come to the warehouse and I’ve got this restaurant equipment, I need you to sell it.” And I said, “I’ve never sold restaurant equipment. I have no idea what I’m doing.” And he goes, “Have you heard of a website called Google?” And I’m like, “Thanks, yes.” And he said, “Come on over.” And all this equipment was brand new. It was all in the box, but it was three to six years old, three to five years old. And he couldn’t sell it to his customers because it was dated, even though it was brand new in the box. And he said, just Google it, whatever the MSRP is on it, list for half and then I’ll pay you 20% commission.
And I said, “Okay, what’s the worst that happens?” So I ended up doing about $100,000 in sales for him in 90 days. This is the biggest paycheck at that time that I had ever gotten. And so I looked at my wife and I said, “We’re not selling couches anymore. We’re going to sell some refrigerators.” So I started doing restaurant auctions and restaurants that were seized for taxes or workman’s comp and stuff like that, or payroll. And we built a business like that, selling on Craigslist as well. And then I got my real estate license in 2012.

David:
So you’re selling all kinds of different things. You’re moving from, I can see the transition from snakes to drugs to storages to refrigerators. You’re starting to move into the [inaudible 00:20:12] area. [inaudible 00:20:13] point you realized that real estate actually is the best thing to be selling. So tell me, how did you transition into real estate?

Eric:
Yeah. So I got my license in 2012. I was the cliche agent of, I’m going to do it part-time. I’ll do it if a deal falls on my lap. So I actually didn’t get serious about real estate until 2017, 2015 area. And I would sold maybe five, 10 houses. And then I sold 15, 20, and then I sold 25. And I looked at it, I was like, “I’m missing the boat here. There is so much more potential and so much more opportunity if I take a risk.” So you fast-forward to 2016, 2017, and I had the conversation with my wife and I said, “Hey, we’re going to shut down Craigslist. We’re just going to shut down and walk away.” And she’s like, “Are you kidding me?” We’re making low six figures and we’re almost out of debt. And we had 150 grand when we started, and I worked it all the way down to, I think about 25 and with all the foreclosures and stuff like that, or pending foreclosures.
And so I said, “I think this is the right decision. I don’t know why, but I think we need to walk away.” And so I said, “I’m going to close May 1st.” And so from January 1st to May 1st, I was working on liquidating the warehouse of restaurant equipment. I had only sold two houses, which commissions on two houses is not a lot. And she said, “This is a terrible idea.” I was like, “I know.” And she’s like, “All right, let’s do it.” And so we did it. And then from May to the end of the year, I sold another 50 houses. So life changing, incredible. And we were able to parlay that money into investing. So we bet on ourselves.

David:
But I mean, did you get into real estate because you just wanted to sell more expensive things, so you got your license?

Eric:
No, I’d always been obsessed with real estate. I watched Armando Montelongo in the early 2000s and even before that. So I had this vision of a one-stop shop where one level would be real estate, one level would be investing, one level would be mortgages, one level would be contractors. And this grandiose dream, if you will, it’s a curse and a blessing. I can only think big. So since I was a kid, I always saw myself in real estate. I just didn’t know how it transitioned or parlayed.

Henry:
Did you get your license and then see the money being made by investors and decide to make that pivot? Or were you always on the thought process that, “I’m going to be an investor.”?

Eric:
A little bit of both. So I got my license and I was still obsessed with Craigslist because I didn’t have any money. We were still super in debt, and so I just kind of chipped away at everything. And then finally, I took the gamble and I had been listening to BiggerPockets for years, like the first 500 episodes, 350 episodes. And I said, “I’m just going to do it.” So the way I bought my first house was the house that had gone into foreclosure four times, we decided to sell. And I had always said, “We’re not going to sell this house. It’s always going to be a rental. We’ll try to figure it out.” But the market had appreciated so well.
So I bought the house for 255. When I went to sell it 10 years later, I owed 265 because of foreclosure fees, attorney fees. Paid on it for 10 years, I still owed more money than I bought it for, but we sold it for 435. So it was a great windfall. We made $180,000 when we walked away, tax-free, because it was owner occupied. And I put 100 grand down on our new house, paid off all of our debt. So we were 100% debt free and left me with 80 grand. And that’s when we bought our first real estate transact or first investment.

David:
So what do you do once you got into real estate? Did you carefully, strategically, and with a calculated measure, move forward? Or did you Eric Quinn your way, rhinoceros right into this?

Eric:
Yeah. So we’ve come up with a new saying, it’s called Quinning. So we just went all in. We did. I spent way more money than I had again. I put it on credit cards and on marketing and Zillow buyer leads. Back then, Zillow was still good. And my income has doubled and tripled every year for five, six years now. Last year, I took the year off, so it was a little lighter last year, but I just went all in again and I said, “What’s the worst that happens here?” And don’t get me wrong, it was not all cupcakes and rainbows. I got kicked in the shin repeatedly and definitely full of self-doubt. And what am I doing here? But for some reason, I was dumb enough to keep going forward.

David:
Well, I see that you bought 15 renos in one month. Was that the case?

Eric:
Yeah. So half of those I put on credit cards. I charged myself and put them on credit cards so I had the cash to buy them. So that is one of the… A great learning experience. So I bought a bunch of houses in Ohio because the sheriff auction sale has a very quick right of redemption.

David:
For reference, where were you located?

Eric:
Colorado. So I lived in Denver and I bought… My first transaction was a warehouse in Ohio. So I was already going to Ohio, I met a local real estate agent, and we’re like, “Hey, let’s partner.” And so we did. So we bought 15 houses in one month. I think all 15 houses cost, you’re going to laugh when I say it, I think less than 100 grand total. And I was like, “This is a grand slam. What could go wrong?”

David:
I can relate to that, Eric. Yeah, I just bought 18 houses over a two-month period. And it’s funny because when you’re looking at the numbers, the numbers work. And we tend to factor the numbers. What you don’t factor is the time and the red tape and the reliance on other people, whether that be a contractor, an employee, a bookkeeper, someone, a property manager. And when you do like a property and little things go wrong, it’s happening at a pace that you can handle it. When you multiply that by 18, it gets out of hand. And I cannot in one day do everything that has to happen. Or you buying 15 renovations in a month. They’re not problems you don’t know how to solve. You just can’t solve 15 of them. It’s like trying to juggle 15 balls versus one or two.

Eric:
Well, and honestly, I probably didn’t know how to solve any of it because it is truthfully my second deal.

Henry:
So no infrastructure [inaudible 00:26:37].

Eric:
No. But I thought I did. I thought I had the boots on the ground. I thought I did my due diligence, but I did not do it well enough. And so it was a lot of learning, and we were robbing Peter to pay Paul and, “Hey, contractor, fix this house. Oh wait, we need you on this house.” And so it took forever and ate all the profits and all the stuff. And my partner, we both mismanaged. I don’t think any malicious intent, but at the end of that partnership, I actually paid him a substantial amount of money to get out of the deals because that was just the right thing to do. And so for me, I would rather leave money on the table because I play long term. I’d rather lose some money today and be safe long term than… Yeah.

Henry:
So can you in any way quantify what was the small gain and/or loss from that situation? And what’s the most valuable lesson you learned from that?

Eric:
Yeah, so we lost probably $200,000 in a year. And I will say that the $200,000 that we lost was potential profit, so not physical dollars. So I want to make that very clear. However, when we dissolved the partnership, I had to give him about $80,000 worth of properties that I owned outright. And there was zero reason for me to play nice. I should have done something differently. However, for me, it was done and I could close that chapter, the weight was lifted off my shoulders, and I could move forward. Do I like losing money? Absolutely not. But I learned and I grew and I pivoted.

David:
Well, it’s hard to make money. It’s hard to be creative. It’s hard to see your next step when you’re just drowning in anxiety and stress. On paper or on spreadsheet, that might look like a bad call. But when you’re in the situation and everybody who’s been there, they totally understand when someone says, “Why would someone sell their house for that cheap?” Man, when you just can’t sleep at night, it’s ruining your relationships, your quality of life is horrible, it’s worth it to get out of that scenario. I actually had a gross analogy when you were talking that I was thinking about. Buying 15 houses at one time is just like eating 15 donuts at one time.

Eric:
It sounded like a good idea.

David:
It’s delicious for a little while.

Eric:
Right? Great idea. Especially if they’re Krispy Kremes.

David:
You get that immediate regret. I can’t digest this and I’m a miserable. And there comes a point where the pain of throwing up is better than the pain of sitting with those 15 donuts. And normally, no one would ever say, “Yeah, just go throw up.” You’re going to feel like crap when you do it. But that makes sense when you’re in that moment. And then you start over. And you hopefully don’t eat 15 donuts.

Henry:
Do you have a Rolodex of different metaphors and comparisons?

David:
Like a magician. I’m going to [inaudible 00:29:26].

Henry:
Yeah, you just yank one out. [inaudible 00:29:27].

Eric:
I have no idea how my own brain works, man.

Henry:
That was [inaudible 00:29:30].

David:
But okay, so you moved on and then you bought a warehouse. So you got out of the 15 donuts and you said, “Okay, instead, I’m going to move on to a new food group.”

Eric:
Yeah, so the warehouse was actually the first transaction I bought. So I bought the warehouse and that’s what caused me to go to Ohio and then these 15 deals. So I’d like to go through the warehouse when we do the deal deep dive, if that’s cool because that was a lot, a lot of learning.

David:
All right. So let’s recap where we are so far. You took your last $500, started a side hustle that saved your family. Turned that into two grand, right? So [inaudible 00:30:01] extra money on that. Turned that into a profitable business, that upselling houses that really got you out of just financial distress and put you on some kind of solid ground. Then you pivoted into becoming a real estate investor. So your first attempts were gnarly. You had to pay 80 grand to get out of the situation. Where’d you go from there?

Eric:
Yeah, so we actually parlayed into some fix and flips, and I was very fortunate enough that of a buddy that had a HELOC on his property, and so he just would give me money to go buy these houses in cash. And then from there, we transitioned into sober living homes. And that’s what we have currently right now, is a bunch of sober living homes.

Henry:
So what triggered that thought process? Because that’s not where most investors [inaudible 00:30:48].

Eric:
So the grace of God, another door open. So I had a client of mine in Denver, I’m a real estate agent as well, and that’s what he was buying. He was buying these sober living homes and he refused to give me the contact information. He’s like, “No, man, these are good deals. I’m not giving them to you. When I’m done buying, I will make an introduction.” And I said, “That’s some crap.” And so two years later, he actually gave me the information. And so we made our first buy about a year after that.

David:
Well, now, information for who or what?

Eric:
Yeah, so these sober living homes, I don’t run them. I’m the landlord. So we partner with local nonprofits, and then the nonprofits actually run the sober living homes.

David:
So he had a contact with a nonprofit that is paid government funds to manage these sober living homes. And he was basically sub-leasing them to those people. And so he just knew what type of property they needed. He would go… You would go find the property for him, he would put it on the contract, buy it, lease it out to them. All right, and he didn’t want to give you the connection to the people that were leasing it?

Henry:
That was the keys to his cashflow.

Eric:
Yeah, 100%. Totally good.

David:
Why did he get out of it, by the way?

Eric:
He retired and he’s got, I believe he’s got 12 of them, and it provides a good life. He worked for a fast food corporation and was with them for a while. Also ran out of cash to keep buying and then said, “I’ve got enough. I’m just going to retire and stare at the mountain sunsets every day.”

David:
And you take the keys.

Eric:
I took the keys. Yeah.

David:
Okay. So when you’re buying these sober living facilities, where should we start? Should we start with what are you looking for in a property that will make these profit?

Eric:
Yep. So we are looking for three, four, or five bedrooms, larger square footprints because we’ll convert dining rooms into a bedroom, we’ll convert extra space, living room, family room. Very, very similar. We’re looking to be on bus lines, walkable distances to jobs and stuff like that. The big thing is I’ve been sober for 22 years as well, and my little sister is an addict. And so these sober living homes, it’s not just about the cashflow for us, it’s about actually making a difference and helping people get their life back together. So it just happens to do very well financially as well. So that’s kind of what our buy boxes are. Sometimes we’ll add pergolas. We have some nice homes that have swimming pools, and it’s actually the community meeting area for some of these houses. We actually own in five or six states total. So I buy out-of-state on all of my properties now for them. And that’s kind of what we’re looking for to make sure it’s advantageous for everybody involved.

David:
Now, do you worry about buying too much and there’s not enough demand for them?

Eric:
Yes and no. What’s slowing me down right now is my buy boxes. I’m getting very strict on what I’m buying because I’m looking to say no with everything going on. Unfortunately, when the economy is good, drug addiction is good. When the economy is bad, drug addiction is good. So I don’t foresee that changing, unfortunately, and it’s an epidemic. And we’re trying to make a difference, but we’re pretty safe.

David:
So going into 2023, what’s your thoughts on the type of buy box you’re looking for, your concerns, or are you excited?

Eric:
Yeah, so I’m actually super excited. So we’re still buying. We have two under contract right now, hopefully three by the end of this week. We’re still buying. I’m just being very specific in what we’re buying. I love Florida. We own five or six in the panhandle. However, the last one we were underwriting got completely blown up because of property taxes and losing homestead exemptions and reassessments and the homeowner’s insurance. I was underwriting these property at 2,500 bucks a year. It’s what it always has been. And my insurance quote came back at 6,300.

David:
Yeah, Florida’s been brutal.

Eric:
Yeah.

David:
[inaudible 00:34:39].

Eric:
It’s brutal. Yeah, it’s definitely kicking me. So we’re looking at that. We’re analyzing the interest rates, obviously, right? I’m doing DSCR loans on everything. Have a great lender. So the rates are pretty good there. Compared, right? It’s not good. It’s comparatively.

Henry:
I’m assuming the cashflow from these things is good enough that even though the interest rates are higher now that you can still purchase and using DSCR loans, you’re putting a 20% down payment typically for every property?

Eric:
Yep. So we’re doing a one point origination, 20% down, 30 year fix rate. So we’re at least doing three 30 year fixes on them. Some of them do have prepaid penalties, but if the interest rates drop enough, I’ll take the hit. The cashflow is pretty solid. We’re pretty happy with it. If it falls below certain cash on cash returns, that’s another box for me.

Henry:
Have you found yourself in a situation, especially now, given market conditions changing where you’re having to pivot a strategy, do you have to sell out? What’s your secondary exit plan if you can’t make the money you’re looking to make doing sober living, or if maybe the property just isn’t in the perfect location? How do you get out of that?

Eric:
So that’s a great question. So I have one of those right now. So we bought it two years ago. Thankfully, the market’s been on my side for the last two years. But it didn’t perform very well. So we’re selling it. This is business for me, so I’m not emotional. So even the houses that I bought two years ago, I was going for the throat on my offers. Now, if it… Let’s say a house is listed for 300, I have zero qualms offering 175 to 225. And if the numbers don’t work, the numbers don’t work, and I just go to the next one. So I’m buying off of MLS. I target specific homes in specific areas, and I go for the throat. I still beat up on inspections. I just got a whole roof replaced. And they’re like, “We’re going to sell it as is.” Sure, you are. And so we’re being very specific and I am taking emotions out of it.

Henry:
That’s one of the biggest fallacies in all of real estate. There is no as is. There’s no as is.

Eric:
No. Completely made up.

Henry:
There’s no as is. So ask a different way. So when you’re buying these sometimes, you’re converting dining rooms, sometimes living rooms, garages, and so if you have to pivot and go to sell some of those things, are you having to then go back in and undo some of that?

Eric:
We haven’t faced that yet. With where we’re buying, we’re usually okay on that. The other thing is that if worst case scenario, I lose the tenant as the sober living home, it will still cashflow as a regular rental, as a long-term rental. So we’re safe there. I would much rather not do that because the cashflow isn’t good. I don’t want to make 100 dollars a door, 50 bucks a door, breakeven. So worst case scenario, we’ll sell. Usually, we’re forcing appreciation anyways, even with this market turn. But when you’re buying a house at 70%, there’s a lot of meat on the bone to go wrong.

Henry:
Absolutely.

David:
What about your rehab on these things? Is it expensive? Are you able to get the money back out of it once you do?

Eric:
Yeah. So I’m just paying cash for the rehabs right now. I leave it in there. I’m not doing any BRRRRs or anything like that or refinances yet. My wife and I have self-funded everything. So we have debt, obviously, in the mortgages, but the 20% is how we’re carrying ourself. The rehabs range anywhere from three grand to 12 grand, depending on the extent that we’re doing. But we’ve got it pre dialed in and systematized. I have a wonderful assistant that will garner three to 10 contractors and set it all up, and then we’d kind of go from there to see who’s the best. And I don’t price shop anymore too. That was another lesson I learned. I don’t go with the cheapest. I very rarely go with the most expensive, but we’re very cognizant of our costs and stuff like that.

David:
Right on. Okay. This is fascinating, but I want to hear about this warehouse that you told us about that did not go well. So we have a special guest today that you’re willing to come on and share a deal deep dive. That was crappy, which people don’t want to do. They want to come on and show off their flowers. But you brought a third and I appreciate that.

Eric:
Yeah. Yes. It is special.

David:
So in this segment of the show, we dive deep into one particular deal that our guest has done, and we will take turns firing questions at you. I will start. What kind of property was this?

Eric:
So it was a commercial warehouse space, is about 16,000 square foot, 16,500. Yep.

Henry:
Awesome. How’d you find it?

Eric:
So I went to LoopNet where deals go to die. I don’t know if I could say that [inaudible 00:39:19].

David:
You hear the miracle story of a LoopNet deal, but in general, it usually is something like this. It’s funny. Yeah. That’s one of the problems that commercial real estate, they don’t really have an MLS. It’s still like a good old boys club in a lot of ways. And so typically, LoopNet’s the closest thing there is, but it’s usually the backwash that makes its way.

Eric:
Well, it’s so much cheaper than some of the other commercial sites too. So yeah, no.

David:
All right. Next question. How much did you buy this thing for?

Eric:
So it was listed for 100 grand.

Henry:
Okay. How’d you negotiate that?

Eric:
Yeah, so like I just said, I always heard that LoopNet was the place that deals go to die. So I offered cash, quick close. As we were negotiating, I found out that the seller was actually the widow of the person who owned the property. And she had just turned 90 and she was liquidating. So I offered half. I actually offered, I want to say it was 45, 45 grand.

David:
Man, I mean, this sounds attractive, right?

Eric:
It sounds great.

David:
Listed at 100, got in for less than half. I’m already thinking of Rosie Perez and White Men Can’t Jump. Sometimes when you lose, you really win. Sometimes when you win, [inaudible 00:40:31].

Henry:
Billy.

David:
All right. So how did you end up funding this deal?

Eric:
So when we sold that first house in 2017, that $180,000 I was talking about, we had 80 grand left. I took half of our money and paid cash for [inaudible 00:40:46].

David:
I don’t know what to do. Just do half.

Eric:
Just do half. It’s fine.

Henry:
Do you have a tone of voice when you go to your wife with these… My wife always knows when I’m about to ask her something outlandish. I’m always like, “Hey, you know that…”

Eric:
I get a look in my eye. About that.

Henry:
Remember that money? I need to use it for something crazy again.

Eric:
Yes.

Henry:
Awesome. So you funded it with cash. So what’d you do with it?

Eric:
Yeah. So we actually had planned all these things. It’s a 16,000 square foot building. It’s going to be great. We’re in it for nothing. We’ll rent it to a big commercial renter. If that doesn’t work, we’ll subdivide it. If that doesn’t work, we’ll do this. If that… So we ended up leaving it empty.

Henry:
Plan Z.

Eric:
Yeah.

David:
Why did you end up leaving it empty?

Eric:
We couldn’t rent it.

David:
I swear this sounds simple, okay, but many of us have made a mistake because when you make decisions based off of a spreadsheet, the spreadsheet tells you what will happen if your projections are accurate, but it cannot tell you if there actually is demand for this unit or things that could go wrong, which is why spreadsheets… We say buy real estate by the numbers and that’s true, but it’s not only by the numbers. The numbers can lie to you sometimes. So that’s funny is you like, “I crushed it on the deal. It was good walking in. I got it for 45% of what it was listed for.”

Henry:
Can’t lose.

Eric:
No. Can’t lose. It’s a winning deal.

David:
Yeah. There’s only one thing that makes real estate not work, and that’s when you don’t have a tenant because there’s only one way that it makes money.

Eric:
That’s absolutely right. Well, and we’ll go into some lessons learned on-

Henry:
Yeah, that’s the next question. What did you learn from this?

Eric:
Yeah, so I learned that you shouldn’t use a residential inspector on a commercial building.

Henry:
Okay, that’s [inaudible 00:42:42].

Eric:
He said, “Oh, man. This is a great building. Super… This is the easiest inspection I’ve ever done. It’s perfect.”

Henry:
It’s fine.

Eric:
And I’m like, “Great. This is my first deal. This makes sense.” Within a month, the roof completely failed. And I don’t know if anybody’s priced out a 16,000 square foot building roof. I didn’t have that kind of money.

David:
I mean, that’s probably more than you paid.

Eric:
Yeah, it was. It was $75,000. Yeah. And I didn’t have that because I…

David:
Because you just spent it on buying it.

Eric:
I spent it on buying it. Right. So I found a guy to do roof coatings and roof repairs, and that was 30 grand. And he used regular paint instead of roof coating. And it was just-

David:
Was this a residential person that-

Eric:
No. It was supposedly a commercial roofer.

David:
That’d be easy to make that mistake twice. Residential real estate, you go to your residential hookups.

Eric:
Yeah. So I didn’t know what I didn’t know. So it’s one of those things that as I’m learning and growing… And hindsight’s always 20/20. One of my new goals now is to be the dumbest person in the room or to be in a room where I can share and help and just give. But I don’t necessarily want to be the smartest person in the room. And I wish I would’ve embraced that on this first deal because I could have asked for help. I could have presented it to somebody else. I could have said, “Hey, what am I missing?” And so it was really bad. So the real outcome though, so we bought it for 45, 47 grand. I’m in it for 75, 80, $90,000 at this point. I listed it on the market, it sat for 18 months because guess what, the warehouse is 16,000 square feet. The lot is 16,500 square feet.

David:
[inaudible 00:44:25].

Eric:
There’s no parking. There was a parking lot next to the building that I thought was included, but it belonged to the church across the street. And so I didn’t do my due diligence. I thought the plot lines were right. So it was miserable. It was listed for, I want to say 18 months. And finally, I said, “I’m done.” I fired the agent and I listed it on Facebook Marketplace. I actually got a bidding war. I listed it for 50 grand because I’m like, “I’m just going to lick my wounds and move on.” I got a bidding war. So we sold it for 63,000 and I only lost 30 to 40 grand. Only lost. I thought that was a win. I’m sure it felt great. It was a win to me because yeah.

David:
And you only had to throw up twice to get it all out.

Henry:
So you only lost the cost of your roof.

David:
[inaudible 00:45:10].

Eric:
Right. Yeah.

David:
You know what I was thinking when you were telling that story, because this is so common, especially when you feel like it’s no risk, you’re getting it at such a good price. How could it go wrong, right? What I see a lot of people will do when they’re in your situation is they will reach out to Henry or me. “Hey, can you look at this deal?” And the odds of us actually being able to analyze an asset class that we don’t buy in in a area that we don’t know and dive into that when we’re running other businesses is incredibly low. You’re way better off to be in a smaller group of people, a mastermind, a group, even a meetup club, anything that you can ask somebody who goes, “I don’t know.” But John buys warehouses and John takes one look at it and in two seconds says, “There’s nowhere to park.”

Eric:
Right.

David:
Right? Or “There’s no one who’s going to rent this out in this area, or the zoning is different.” The person who knows the asset class doesn’t need to put a eight-hour investment like Henry or I would have to do. And the people that don’t want to either invest the time or the money or the energy, or like you said, just giving back into groups, that’s where these mistakes come from. And like you said, you don’t want to be the smartest person in the room. That’s very valuable because that same question could be, for me, like three days of research to try to get back to you or for somebody else, five seconds. That you now looking at some of this stuff would be like, “Absolutely not.” Because you’ve learned what you didn’t know.

Eric:
Well, and I’ll say that’s probably one of the successes, greatest successes and pivots in my life as well, is getting involved with these mastermind groups. There’s meetup.com right now. There’s all sorts of places that you can do. Obviously, do due diligence because there are some fake gurus out there, if you will. But I don’t know if you remember this, but when you and Brandon were asking to meet Vanilla Ice, and that’s how we met. And then I did a mastermind group with you, and that was fantastic for a year, and then I took a break.

David:
Oh, I remember. I was trying to convince you to stop taking listings at 1%.

Eric:
Yes. And that has changed my life, by the way. We could talk about that separately. So just for the record, my new average commission is 3.75 for my slide. Yeah.

David:
That’s a big jump.

Eric:
It’s a huge jump.

Henry:
Did you get a piece of that?

Eric:
No, he should though.

Henry:
Get it in the emotional.

Eric:
Yes. But I was in your mastermind group, and then I took a year off, and then I reached out two and a half years ago and I said, “Hey, man. I really want to get into this larger group that I got denied in at first.” And you were my sponsor. You vouched for me. And that has changed my life. So it is who you hang out with. When we were super poor, I was best friends with Tony Robbins, Jim Rohn, Zig Ziglar, because that’s all I listened to. Eric Thomas. That’s all I would listen to. And I never met those guys, but they were my best friends. You are who you hang out with.

Henry:
[inaudible 00:47:49].

David:
That’s awesome. We’re not going to ask you the hero on this deal was because this was a big, flaming, stinky turd.

Eric:
My wife. My wife.

David:
Seems like the hero in everything that you’ve told.

Eric:
Yeah. Let’s just be honest. It’s all her. It’s all her.

David:
All right. Well, that’s fantastic. So from turds to helpful words, we’re going to move on to the last segment of our show. This is the world-famous Famous Four. In this segment of the show, we ask every guest the same four questions every episode. Question number one, what is your favorite real estate related book?

Eric:
Yep. So I’m going to go a little bit different. I would say that I have two. The Gap and The Gain and Who Not How.

David:
Benjamin Hardy books.

Eric:
Yeah. Yep. Dan Sullivan. I’ve been kind of obsessed with them lately to kind of systematize and streamline. So those two have been really, really good for me.

Henry:
Awesome. So obviously, the next question is business books. So do you have another recommendation or is it these two?

Eric:
Yeah, so Atlas Shrugged, if you have not read that. I never identified as a reader, but I’ve made it my mission. Last year, I read 10,000 pages, and this year, I’m going to probably try to do 15,000. It scared me. It’s 1,100 pages, 1,200 pages book. It’s terribly intimidating, but it is incredible. I’m only halfway through, but it is one of the best books I’ve ever read. The other one would be The Greatest Showman movie on Disney Plus. If you haven’t watched that, it will also change your life. Watch it with captions.

David:
I want you all to let me know in the comments if an 1,100-page book is better because you pay the same price to get more book or if you’d rather read a 40-page book? Because I go round and round with book publishers about this where they always want a shorter book. And I’m like, “Why would I want to give you a short book? Why wouldn’t I give you a long book?”

Eric:
It sat on my nightstand for probably six months before I was like, “Okay, I’m going to do it.” And now, I’m like, “Oh, I love…” I read it on the entire plane ride here. So I spent three hours reading it today.

David:
Eat that elephant one bite at a time. Brandon Turner, actually, a couple months ago, was telling me about Atlas Shrugged.

Eric:
Yeah, it’s great. It is so scary how spot on it is with life. It’s incredible.

David:
Well, my understanding is it kind of brings up a part of life that makes people uncomfortable that we don’t always want to acknowledge.

Eric:
100%. I don’t want to ruin anything, but it’s really good. I would definitely recommend. It’s 10 bucks on Amazon. Pick it up.

Henry:
How much is that? What’s that per page?

Eric:
[inaudible 00:50:09]. It’s a good ROI for yourself. Yeah.

Henry:
Investors, right?

Eric:
Yeah.

David:
Immediately [inaudible 00:50:16].

Henry:
Great. So what are your hobbies when you’re not reading 1,100 pages?

Eric:
Right. Yeah. So obviously, hanging out with my wife and kids. I’ve been on this crazy rabbit hole of health. Lost 40 pounds in the last…

David:
Me too.

Eric:
Nice. Yeah. So I lost 40 pounds the last 120 days. So we just bought a sauna, we have a cold plunge, weights and stuff like that. So really going, dialing in nutrition. I actually have two cold plunges. One for myself and my wife, and then one for my kids because I don’t want them to get too cold. And so we have family bonding every night. We do the sauna and cold plunges together. It’s pretty crazy.

David:
I think I saw you recently posted a picture on Facebook, right? The fitness room kind of in your house where you have the sauna and everything set up. You’re like, “Oh, I might go way too far down this rabbit hole.”

Eric:
Yeah. But it’s a good rabbit hole to go down.

Henry:
You slept on clothes and now you have a cold plunge room.

Eric:
Right, exactly. [inaudible 00:51:09]. Yep. And then we also still breed snakes.

Henry:
Of course you do.

Eric:
We have a…

Henry:
The story had to go downhill.

Eric:
We have a side hobby still. Yeah. Yep.

David:
All right. In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Eric:
Yeah. I would say it’s pivoting and learning, not being afraid to fail. I don’t think there is anything as failing, because if you’re learning and growing. And it’s cliche to say everybody’s saying that right now. The other thing is when I was doing the storage unit auctions and the auctioneer would try to get people to bid, so when the auction would stop or the bidding stalled, he would say, “Hey, they print more money every day.” And that has resonated with me. They print more money every day, so when I do make mistakes and missteps, which is going to happen, it’s okay. They print more money every day. I just got to figure out how to get it.

Henry:
People think of failure as an ending, and I agree with that, because you can only fail if you quit. If you keep pushing, then it’s just a road bump.

Eric:
Right. And if you’re a savage, just tenacious and a savage on learning and growing, you’ll be good. You’ll be good.

David:
That’s the danger in taking the blueprint mindset. Just show me the blueprint and I’ll build it exactly how you said to build it. Life doesn’t actually work out that way. It could be explained when we’re dumbing it down to simplify the concepts that work in something. A blueprint can make sense. But the actual application, anyone that’s ever played a sport, the play is never going to go the way that they draw it up.

Eric:
Right. You go do jiu-jitsu and you’re like, “I’m going to do this move to do this move to do this move.” And then within a half a second, you’re like, “Well, there goes that idea.”

David:
That’s… Yes.

Henry:
That’s what Tyson said, man.

David:
Yeah. Everyone has a plan until they get punched in the mouth. And that is life. That is literally how life works. You are much better to try to learn the principles of jiu-jitsu, the tenacity needed to stay in a fight when you get punched in the mouth, the ability to pivot within real estate and move, than it is to say, “I just want to pay for a course to learn a blueprint that I’m just going to go execute. And I’ll never make a mistake.” You won’t actually make any progress doing that. So I appreciate you being here to share your story. This is really cool. You actually flew in from Florida just to come meet with us in person, which is awesome. And then also showing some of the warts, right? It’s very common that people want to come on a podcast like this and they want to show off their flowers. They want to tell everybody how great they did.
And then that becomes discouraging for all the people listening who make mistakes and go, “Well, I must be doing it wrong, because these guys have these great stories.” Everybody’s got warts. Everybody’s making mistakes. In this economy, especially, we’re starting to see more and more and more of the moves that were made a couple years ago, or even six months ago, are much, much difficult. There’s a lot of pivoting that’s going to be happening. So in the famous words of Ross Geller from Friends, you need to pivot [inaudible 00:53:53] success.

Eric:
It’s true.

David:
[inaudible 00:53:54]. Henry, any last words for you?

Henry:
Nah, I just want to thank you for your vulnerability. Thank you for being real. Thank you for sharing some stories that were personal. And I think it’s truly going to help people. And never met you before today, but feel like I know you now. So thank you for being so real.

Eric:
Yeah. And thank you for having me. It was terrifying. This is really the first podcast I’ve ever done. So I just-

Henry:
You’re a natural.

Eric:
I just really appreciate the opportunity and thank you.

David:
Eric, people are going to be fascinated by your story. They’re going to want to find you. Where can they go to find out more about?

Eric:
So I just set up Instagram.

David:
Congratulations.

Eric:
So ericquinn929 on Instagram. Facebook is really great there too. Just Eric Quinn on Facebook.

David:
E-R-I-C?

Eric:
E-R-I-C. Yep.

David:
Henry, how about you?

Henry:
I am @thehenrywashington on Instagram or henrywashington.com.

David:
There you go. And I am davidgreene24 on every social media and davidgreene24.com for the website. So we’d love to hear from you guys. Thank you for listening. Let us know what you think about our setup here. Tell us in the YouTube comments. Do you like this? Do you like the Zoom format more? What was your favorite part of today’s show? And let Eric know that you appreciate him. This is David Greene for Eric “Quinning” Quinn and Henry “The Prince of Pivot” Washington, signing off.

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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Silicon Valley Bank resumed mortgage originations on Tuesday via its newly established “bridge bank” — just four days after California state regulators took possession of the financial institution and appointed the Federal Deposit Insurance Company (FDIC) as receivers. 

“We are still open for business and my team is still working together moving the mortgage loans through our pipeline,” Suzie Porter, director of mortgage operations at SVB, said in a social media post on Tuesday.

On Friday, the 40-year-old commercial bank focused on the tech community SVB collapsed amid a deposit run that provoked a liquidity crisis, which triggered the regulators’ interference. 

Over the weekend, the FDIC transferred all deposits and assets of the former SVB to a “bridge bank” called Silicon Valley Bridge Bank, N.A. The new entity stated that depositors have full access to their money and that new and existing deposits are protected.  

On Tuesday, its newly appointed CEO, Tim Mayopoulos, said in a statement Silicon Valley Bridge Bank, N.A. was open for business. “We are making new loans and fully honoring existing credit facilities.” 

Mayopoulos, a former Fannie Mae CEO and Blend president, is a veteran of crisis management and mortgage. He joined Fannie Mae in the wake of the financial crisis in 2008-2009 and served as CEO from 2012 to 2018.

Mayopoulos resigned to join mortgage software startup Blend in 2019. In January, he announced he was stepping down from his role as president of Blend, which has struggled financially. 

Mayopoulos, an FDIC systemic resolution advisory committee member for over two years, will lead SVB, an institution with $209 billion in assets. 

SVB operated as a portfolio lender in the residential mortgage space, not selling loans on the secondary market. This structure allows the bank to offer clients “common sense underwriting and provide more nimble prequalifications, approvals and closings,” the bank said on its website. 

SVB focuses on jumbo loans (greater than $726,200), which have lower rates, for primary and secondary homes. Mortgage News Daily showed the average 30-year jumbo mortgage rates at 6.15% on Wednesday afternoon, compared to 6.55% for conventional loans. 

SVB’s mortgage origination volume reached $2.4 billion in 12 months, through 30 active loan officers and 20 branches, according to mortgage tech platform Modex. In total, 76.6% of the production was conventional loans and 49% consisted of purchase loans. The company’s average mortgage loan was about $1.45 million, and the vast majority of its origination volume is in California. 

One of Mayopoulos’ first missions is to restore customers’ confidence in SVB after the turbulence over the last few days. The bank’s former executive team failed to sell its assets to ensure customers’ withdrawals. They took a $1.8 billion loss from selling a $21 billion portfolio of available-for-sale securities that triggered massive deposit outflows.  

SVB had a securities-investment portfolio of $120.1 billion as of Dec. 31, 2022, including more than $16 billion in Treasury securities and some $64 billion in agency-issued mortgage-backed securities, according to Securities and Exchange Commission filings. Much of that MBS portfolio involved lower mortgage rates and was marked as being “held to maturity.”  

SVB specializes in banking for tech startups, financing almost half of U.S. venture-backed technology and healthcare companies. 

“The number one thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days,” Mayopoulos said in a statement. 



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The U.S. Department of Housing and Urban Development (HUD) on Wednesday announced a sweeping overhaul of the agency’s disaster recovery efforts to improve the response for communities impacted by climate change.

HUD has played an expanded role in the response to natural disasters in recent years. As such, the Department is establishing two new offices: the Office of Disaster Management (ODM) in the Office of the Deputy Secretary and the Office of Disaster Recovery (ODR) within the Office of Community Planning and Development.

This includes “dozens” of additional staff to help expedite the establishment of the offices — and an investment of $3.4 billion in Community Development Block Grant-Disaster Recovery (CDBG-DR) funds.

“The allocated funds will help communities in Alaska, Florida, Illinois, Kentucky, Missouri, Oklahoma, and Puerto Rico recover from disasters and build resilience from climate effects, with a specific focus on low- and moderate-income populations,” HUD said in an announcement about the move. “The funds are specified to be used for disaster relief, long-term recovery, restoration of infrastructure and housing, economic revitalization, and mitigation, in the most impacted and distressed areas.”

These efforts are expected to help HUD streamline collaboration efforts and better meet its goals, the Department said.

“These steps will streamline the agency’s disaster recovery and resilience work by increasing coordination, reducing bureaucracy, and increasing capacity to get recovery funding to communities more quickly by facilitating collaborative, transparent disaster recovery planning with communities earlier in the process,” HUD said.

These efforts were announced on Wednesday during events by Department leaders. HUD Secretary Marcia Fudge spoke of these new efforts during a visit to Jackson, Kentucky, a state that recently received about $300 million in recovery funds.

Deputy HUD Secretary Adrianne Todman also spoke of the moves in Ft. Myers, Florida, a state where communities are receiving $2.7 billion in funds for a number of disasters that have recently occurred.

“HUD is committed to helping underserved communities in hard-hit areas recover from  disasters,” said Fudge. “We know that far too often, not-so-privileged households bear the brunt of climate-related disasters. We will ensure they have access to the resources they need to rebuild and recover equitably. Today’s announcement sends  a strong message: equity is elemental to the disaster recovery work of HUD and the Biden-Harris Administration.”

These initiatives follow a December 2022 request for information by HUD, in which the Department asked for ways to simplify, modernize, and more equitably distribute disaster recovery funds in the form of CDBG grants related to disaster recovery (CDBG-DR) and mitigation (CDBG-MIT). 

“Over the last two decades, an increasing number of major disasters have impacted the nation and highlighted the importance of effective disaster management at the Federal, State and Local levels of government,” HUD said. “HUD plays an outsized role in preparing relocations of populations, addressing disaster-related housing needs, supporting [the Federal Emergency Management Agency (FEMA)] with evacuation, sheltering HUD-assisted residents, developing interim housing solutions, and leading planning and supporting  long-term, sustainable community recovery.”

These efforts fall under a Climate Action Plan released by HUD in October of 2021 — a plan put into motion through an executive order during the first week of President Joe Biden’s term in office.

Last year, HUD announced that homeowners with Federal Housing Administration-insured mortgage financing will now be allowed to obtain private flood insurance policies. This was done in an effort to expand consumer options and protect borrowers from the leading type of natural disaster nationwide.

In addition, Sen. Cindy Hyde-Smith (R-Miss.) and three Republican colleagues recently reintroduced a bill designed to permit policyholders under the National Flood Insurance Program to have prior premium rates remain in effect until the FEMA administrator satisfies certain conditions. A prior version was introduced last year but failed to progress.



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The Silicon Valley Bank and Signature Bank failures that occurred over the last week have caused even more uncertainty within the mortgage industry. Still, homebuyers took advantage of declining rates provoked by the turbulence and applied for home loans. Meanwhile, mortgage lenders are still trying to calm down their investors and business partners. 

The recent crisis impacted homebuyers in different ways. A potential pause on the Federal Reserve’s federal funds rate hikes may bring borrowers on the sidelines back to the market, as mortgage rates could fall even further. However, the turbulence can harm consumer confidence to commit to new home loans. 

“Consumer confidence is always a very necessary part of buying a house, and certainly reading the news about potential lack of access to deposits that customers have with these two banks, people may worry about that,” James Deitch, founder of Teraverde Management Advisors LLC, said. “But I’m not sure the consumer will hold off on purchasing a house simply because of the turbulence they may see in Silicon Valley and Signature.” 

The latest Mortgage Bankers Association (MBA) survey proved Deitch right. The data shows that the mortgage composite index, a mortgage loan application volume measure, increased 6.5% for the week ending Jan. 10 compared to the prior week. The refinance index increased 5% in the same period, and the seasonally adjusted purchase index rose 7%.

The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications. 

“Treasury yields declined late last week, as market concerns over bank closures and the potential for broader ripple effects triggered a flight to safety in Treasury bonds,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “While lower rates should buoy housing demand, the financial market volatility may cause buyers to pause their decisions.” 

The MBA survey shows that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) was 6.71% last week, down from the previous week’s 6.79%. Rates for jumbo loan balances (greater than $726,200) went from 6.49% to 6.39% in the same period. 

Silicon Valley Bank collapsed last week after it lacked the liquidity to pay for clients’ withdrawals. It was the biggest bank failure since Washington Mutual collapsed in 2008. The SVB failure was followed by Signature Bank, which closed its doors on Sunday. Citing systemic risks, regulators approved depositors’ access to all their money and additional funding for banks on Sunday. 

“The Treasury did make the correct decision to stabilize the market by ensuring that depositors had access to their funds. Depositors did nothing wrong; they should have access to their funds. That was a favorable development,” Deitch said. 

Calming the market 

With many storm clouds on the horizon, the two top U.S. lenders, Rocket Companies and United Wholesale Mortgage, announced that they don’t hold cash deposits or securities at Silicon Valley and Signature and have no business relationship or direct exposure to the banks. 

Regarding its funding capacity, Rocket said, “the Company’s warehouse line providers are all with large global money center banks or their affiliates,” according to an 8k filing with the Securities and Exchange Commission (SEC). UWM added that 90% of the “company’s $9.3 billion warehouse line capacity is with large global money center banks or their affiliates.” 

Mr. Cooper also stated the company’s corporate uninsured cash accounts are held in money centers and global investment banks. Client funds are held in insured deposit accounts at a mix of money centers and regional banks, the company said. 

“Separately, the Company disclosed that over the course of the first quarter, it has increased the target hedge ratio on its MSR hedge position to 75% of the net duration risk in its MSR portfolio from 25% at year-end 2022, with the goal of mitigating the risk to capital and tangible book value in a declining interest rate environment,” the company said in a Form 8K filing. 

Mauro Guzzo, founder and executive chairman at brokerage firm Guzzo & Co, said he has not seen lenders further tightening lending conditions since last week. However, according to Guzzo, the banks’ crisis could change the market by potentially lowering interest rates. 

“But this is something which has not been announced just yet,” Guzzo said. “The Fed will need to make a difficult decision between continuing to fight inflation or instead bring down the rates to calm the market down.” 



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March came in like a lion for the banking industry with a trio of bank failures, including the nation’s 16th largest bank, Silicon Valley Bank (SVB), with assets of $212 billion.

The other banks laid to rest in early March were crypto-friendly lenders Silvergate Capital Corp. ($11.4 billion in assets) and Signature Bank ($110 billion in assets). The bank failures set off panic in markets globally and prompted a flight to safe investments, like U.S. Treasuries, which has helped to fuel a recent precipitous decline in interest rates.

The impact of the failures is still being assessed by the markets. Experts who spoke with HousingWire about the banking-industry woes point out that it’s still too early to know how everything will shake out. For now, however, they say lenders in the adjacent mortgage banking market should take some prudent steps to guard against the worst of the downside risk — zeroing in on bank-sponsored warehouse lines utilized by independent mortgage banks (IMBs).

Among the commonalities for all three failed banks was a concentration of customers in a narrow industry segment — crypto-focused for Silvergate and Signature and tech-focused for SVB — and a high volume of “hot deposits” that were prone to flight in search of the best return on their money. 

For SVB, the most significant bank failure of the three — and the largest since 2008 and the crash of Washington Mutual — the customer concentration and short-term deposit risk it carried was set against a longer-term investment portfolio that had been clobbered by the doubling of interest rates over the course of 2022 in the wake of the Federal Reserve’s monetary tightening policies. 

“I have trouble understanding how this can happen, that you’re taking in a lot of the short-term deposits and making a lot of long-term investments,” said Community Home Lenders Association (CHLA) Executive Director Scott Olson during a webinar this week focused on assessing SVB’s failure and its consequences. CHLA serves small and mid-sized independent mortgage banks.

“I’m sure it seemed like a good idea at the time,” Olson added, “but how many times do we have to see this before we learn that it’s a very, very risky strategy.”

In fact, the rate environment that spurred the liquidity crisis at SVB also has wreaked havoc on bank bond portfolios generally.

“As a result of the higher interest rates, longer-term maturity assets acquired by banks when interest rates were lower are now worth less than their face values,” said Martin Gruenberg, chairman of the Federal Insurance Deposit Corp. (FDIC) in recent speech at the Institute of International Bankers. “The result is that most banks have some amount of unrealized losses on securities. 

“The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.”

As of Dec. 31, 2022, SVB had a total a securities-investment portfolio of $120.1 billion, including more than $16 billion in Treasury securities and some $64 billion in agency-issued mortgage-backed securities, according to the bank’s filings with the U.S. Securities and Exchange Commission. Much of that MBS portfolio involves mortgages originated prior to the Fed-induced rate run-up, when 30-year fixed mortgage rates were at 3% or less, versus now, when they are more than twice that mark.

The bulk of SVB’s investment portfolio, some $91.3 billion, including $57.7 billion in MBS, is marked as being “held to maturity.” The balance of the SVB portfolio ($26.1 billion) was listed as “available for sale” (AFS), per the SEC filings. The bank also listed some $2.7 billion in non-marketable equity securities. 

In early March, the bank sold roughly $21 billion of its AFS portfolio, recording a $1.8 billion loss due to the volatile rate environment. The bond sale was required, in part, to compensate for a large exodus of deposits in 2022 as the tech industry faltered, which created liquidity issues for the lender.

In the wake of that bond-sale loss, SVB announced it would seek to raise capital to replenish its equity, which spooked the markets, icing the fundraising plan. The bank’s customers, already dealing with a downturn in their high-flying industry, also were alarmed by the exposure of SVB’s precarious finances — which led to a social media-amplified run on the bank and its subsequent collapse.

“They [SVB] had immense concentration risk in the tech space [in terms of customers],” said Brian Hale, founder and CEO of consulting firm Mortgage Advisory Partners. “And they completely mismanaged, in my opinion, the duration risk [of their investment portfolio].”

“When you have long-term assets [MBS] that are financed with short-term deposits, if the deposits begin to get repriced [upward, and you’ve locked in your asset yield [too low] because your deposit costs were [low at the time], when those short-term deposits get repriced [higher], that’s the definition of disintermediation.”

IMBs don’t face a disintermediation challenge because they don’t deal with deposits or maintain long-term investment portfolios. They do, however, utilize bank warehouse lines of credit to help fund mortgage originations,

“This is purely a lend long borrow short problem that these guys [SVB ] got themselves into,” said Dave Stevens, CEO of Mountain Lake Consulting and past president and CEO of the Mortgage Bankers Association, who also spoke about SVB’s failure during the recent webinar. “IMBs don’t retain much risk. They are primarily pass-through entities … with an outstanding pipeline of loans that are locked until they close and get sold.”

Warehouse lines

Stevens added, however, that the big threat with the recent bank failures is the potential for a “contagion” effect.

“How do you control the potential spread of this to other banks around the country that are behaving the same way?” he asked. “That’s the other shoe to drop.

“For IMBs, what you need to be thinking about is where are your warehouse lines, and do have enough diversified options for warehouse lines should one of the banks that you do business with potentially be at risk?”

Stevens stressed that, in his opinion, the recent bank failures are not likely to have a contagion effect. He estimated that there are no more than a dozen banks nationwide that have an “overconcentration in long, underwater investments in the Treasury markets and the mortgage-backed securities (MBS) market.”

Rob Nunziata, co-CEO of independent mortgage lender FBC Mortgage, said FBC works with a number of warehouse lenders, small and large, including Texas Capital BankWestern AllianceBank of America and Veritex Community Bank.

“I’ve talked to all of our warehouse lenders,” he said. “They’ve all said the same think, ‘It’s business as usual.’ 

“What they’re seeing is that it is a very regional situation [with the bank failures]. … Basically, they are saying that they’ve got strong balance sheets and don’t anticipate anything to change … based on what’s currently happening.”

Nunziata added that the optimistic outlook from warehouse lenders could change in the future, of course, “but as of now, it’s really that same message from all the warehouse banks we work with.”

Nunziata’s assessment of the warehouse-lending space is echoed in a recent posting on Texas Capital Bank’s LinkedIn page, which states the following:

“We have purposefully built Texas Capital Bank to operate from a position of financial strength and stability and to serve our clients through market and rate driven cycles. Thanks to our actions in 2021 and 2022, we have peer-leading balance-sheet strength, with 18% of our total assets in cash and 30% in liquid assets, along with 13% common equity Tier 1 capitalization. Each of these metrics puts us among the best-capitalized banks in the United States, including in comparison to the largest U.S. firms.”

Still, CHLA President Taylor Stork, who also is chief operating officer at Developer’s Mortgage Co., said IMBs should be in close communications with their warehouse lenders at this time. Stork spoke during the same webinar that Stevens and Olson participated in this week.

“In the warehouse space right now, every single IMB operator needs to be on the phone with their warehouse provider having a very, very open honest two-way conversation,” he said. “Here’s where I am. Here’s my cash position. Here’s my liquidity position. What’s yours? How do you look? How do we make sure that we work well together?”

Bank failures and fears of margin calls

The 2-year Treasury yield on Monday, March 13, recorded its biggest drop since the stock market crash of 1987, though it rebounded a bit on Tuesday. Likewise, the 10-year Treasury rebounded some on Tuesday, after hitting a five-week low of 3.51% on Monday.

The sudden rate plunge in recent days prompted both Davis and Hale to raise the prospect of mortgage banks being hit with potential margin calls.

“You’ll remember at the beginning March and April of 2020, at the beginning of [the pandemic], rates dropped precipitously,” Hale said. “Well, a lot of mortgage companies got nailed.

“I hope the industry learned from that to some degree, but I talked to some people today that are nervous about margin calls around the interest rate move.”

Stevens added during the SVB-focused webinar: “I think anybody who’s hedging the pipeline right now knows that they’re going to get margin calls. I think it’s a given unless the bond market just reverts back, which I don’t think is going to happen right away.”

John Toohig, head of whole-loan trading Raymond James, said if there was a margin-call rush, he did not see signs of it on his trading desk as of Monday, March 13.

“I had plenty of buyers calling me, more bottom-feeders, saying they were available and looking for an opportunistic [asset] pool, but I didn’t have any sellers calling me, looking for an exit,” Toohig said. “I did not see forced sellers [a sign of margin calls], so If it happened, I didn’t have vision into that, but that’s not to say what other desks or sellers experienced.”

Spencer Kallick, a partner focused on real estate transactions and land-use entitlement at the law firm of Allen Matkins, said he remains an optimist about the real estate market and the longer-term outlook for the U.S. economy. Assuming he’s correct, then maybe March for the mortgage industry will leave as a lamb. We’ll have to all ride it out and see.

When it comes to people’s “common sense,” however, Kallick is less sanguine, saying it sometimes seems in short supply today.

“I think sometimes in this in this very high-stakes, fast-paced world, some of the common sense goes out the window, and some of the best practices go out the window,” he said. “That was the case here [with SVB’s failure], on the bank side, but also on the borrower side, and on the on the business side of things.

“But I don’t think that this [the fallout from the recent bank failure] is going to spread like wildfire for two reasons: One, because I think that it’s a case of several banks failing that are very heavily concentrated in one area, and I think most banks are much more diversified. I also think the other thing, quite candidly, is that the Biden administration [via its recent expansion of liquidity options for banks and its action to make whole all depositors at SVB and Signature Bank] has shown a strong willingness to step in and make sure that this doesn’t happen again.”



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Consumer prices climbed at a slower pace in February, keeping alive the hope that the Federal Reserve may pause the federal funds rate hikes in its meeting next week following the Silicon Valley Bank and Signature Bank failures

The Consumer Price Index (CPI) rose by 6% in February before seasonal adjustment compared to one year ago, lower than the 6.4% increase recorded in the 12 months ending in January, according to data released Tuesday by the Bureau of Labor Statistics (BLS).

The year-over-year increase can be attributed to large annual jumps in the indexes for transportation services (+10.2%), energy services (+13.3%), and food (+9.5%). Consumer prices fell in energy commodities (-1.4%), gasoline (-2%) and used cars and trucks (-13.6%). 

Meanwhile, the CPI increased 0.4% on a monthly basis in February on a seasonally adjusted basis, after rising 0.5% in January. Transportation services jumped 1.1% and shelter had a 0.8% increase. But utility gas service declined by 8%, and fuel oil fell by 7.9%. 

“Before this week’s bank failures and growing risks in the banking sector, the February inflation report would have meant that it was all but certain that the Federal Reserve would continue to raise rates,” Lisa Sturtevant, Bright MLS chief economist, said in a statement. 

“The labor market is still proving to be surprisingly resilient in the face of eight rate hikes over the past year. But the recent failures of Silicon Valley Bank and Signature Bank have complicated the picture.”

Monetary policy observers had previously forecasted that the Fed would increase the federal funds rate by 50 basis point increase in the meeting scheduled for next week. However, it’s now growing the group of observers believe another hike could be counterproductive to manage the current turbulence. 

A liquidity crisis hit American banks amid a deposit run. Silicon Valley Bank collapsed last week, the biggest bank failure since Washington Mutual in 2008. Signature Bank closed its doors on Sunday. And others are looking for ways to improve their liquidity to avoid a crisis. 

“We now expect the FOMC to pause [the federal funds rate] at its March 21-22 meeting,” wrote a team of analysts at Goldman Sachs. “It will be hard to be completely confident in the near term that Sunday’s intervention will halt the pressure on smaller banks, who play a large macroeconomic role and could become considerably more conservative in their lending.”

Several other Fed observers told HousingWire on Monday that they expect a 25 bps hike next week.

In a joint statement on Sunday, the U.S. Department of Treasury, the Fed and the Federal Deposit Insurance Corporation announced the approval of interventions in Silicon Valley Bank and Signature Bank. They also approved depositors’ access to all their money and additional funding for banks. 

The housing sector  

According to Sturtevant, despite reports of rents and home prices falling across many markets, housing costs for homeowners, which account for more than 30% of the inflation index, remained higher than the overall figure in February. 

“Housing costs are a key driver of the inflation figures, but they are also a lagging indicator. It typically takes six months for new rent data to be reflected in the CPI. The quirk in how housing cost data are collected contributes to overstating current inflation,” Sturtevant said. 

Month over month, the shelter index was up 0.8%, with a 0.8% increase in rent and 2.3% for lodging away from home. Compared to a year ago, the shelter index was up 8.1% in February, with rents increasing 8.8%. 

The current uncertainty brings an upside to the housing market: mortgage rates are in a downward trend. At Mortgage News Daily, the 30-year fixed-rate mortgage was 6.57% on Tuesday morning, down 19 basis points from the previous day. 

“A pause in rate hikes and a flight to more secure investments will bring mortgage rates down, which could help prop up a subdued spring housing market,” Sturtevant said. 



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Despite affordability challenges, the Hispanic homeownership rate reached 48.6% in 2022, the eighth consecutive year of growth. 

Latinos added a net total of 349,000 homeowner households last year, which is one of the largest single year gains over the last decade, the National Association of Hispanic Real Estate Professionals (NAHREP) said in its 2022 state of Hispanic homeownership report on Tuesday. 

Since 2014, when homeownership rates among Latinos began increasing following the Great Recession, 2.3 million net new Hispanic homeowner households had been added to the market, accounting for 24.4% of overall homeownership growth. Today, there are 9.2 million Hispanic homeowner households.

Latinos made up for 38.7% of all household formations last year. This is in contrast to the previous two years when an unexpected boom in non-Hispanic White household formations nearly doubled that of Latino households. 

The shift in recent trends was expected, the report notes, as the relative youth and growing population of the Latino community would add to new household formations

Latinos trend younger as homeowners. About 70.6% Latinos who purchased a home with a mortgage in 2021 were under the age of 45, compared to 63.9% of the general population, and 61.5% of non-Hispanic White buyers, according to data from the Home Mortgage Disclosure Act (HMDA).

About 33% of Latinos aged 45 and under have the credit characteristics to qualify for a mortgage. Among those who don’t already have a mortgage, the share of mortgage-ready Latinos increases to 39%, according to Freddie Mac

Latinos have the largest near mortgage-ready population of any racial or ethnic group, the report noted.

Latinos tend to be concentrated in larger cities and coastal markets where home prices are high, the report said. The rapid rise in interest rates had a cooling effect on the overheated housing market, which in turn created new barriers to affordability. The rise in interest rates dramatically increased monthly mortgage payments, even in markets that experienced price reductions. 

NAHREP noted ample opportunity markets in states such as Texas and midwestern markets that traditionally haven’t had large Latino populations.

Texas has consistently topped the list for most Latino net migration, best opportunity markets and producing the greatest number of new Latino homeowners. Between 2020 and 2022, Texas saw a net gain of nearly 150,000 Latino residents. McAllen, Brownsville, and El Paso, Texas also made up the top three opportunity markets for Latinos, based on the number of mortgage-ready Latinos and affordability. 

“Despite market challenges, the future of homeownership growth will continue to rely on Latinos, given that they are young, growing in population, and rapidly forming new households,” according to NAHREP. 

The increase in Special Purpose Credit Programs (SPCPs) could play a promising role in closing the non-Hispanic White and Latino homeownership gap, NAHREP said. SPCP mortgage types include refinance, purchase, construction, home equity lines of credit (HELOC) and down payment or closing cost assistance. 

In 2023, both Fannie Mae and Freddie Mac will run scaled multi-metropolitan statistical area (MSA) pilot SPCPs with selected lenders in various cities and metro areas. 

Numerous lenders are expected to bring their own SPCPs to market this year, opening the door for new programs that could address common underwriting issues, such as debt-to-income ratios and non-W2 incomes, two factors that disproportionately impact the Latino community, according to the report.

NAHREP conducted its annual Latino Buyers Survey from January 1 to February 13, 2023, to gauge Latino home buying trends across the country. 

The survey was administered online and received 510 responses. NAHREP conducted in-depth interviews with all 25 top Latino real estate practitioners.



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Local housing markets is a HousingWire magazine feature spotlighting housing trends across the country.

New York City, New York

In many ways the spring of 2022 marked the full return of New York City and for a real estate agent like Johnson Tsai, a lead agent at REAL, this meant a massive up-tick in rental demand. “We are typically super busy from March through August and sometimes even into October,” Tsai said. “This seasonal trend came back last year and then we had even more people mov-ing back who had left at the onset of the COVID-19 pandemic. Things finally slowed down in November and I expect them to pick back up in the spring. It is still kind of a weird market, but it is going back to a little bit more normal.”

Tsai works with both homebuyers and tenants and while he says his business is typically split 50/50 between buyers and tenants, he has noticed a shift as mortgage rates have risen over the past six months. “Given the current market, my business is at least about 60% renters and the other 30% to 40% is buyers and sellers,” Tsai said. He also noted that he expects this ratio to continue in 2023 and the ratio of his business to potentially increase this spring.

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The housing market in New York City, New York

Sarasota, Florida

On Florida’s Gulf Coast, Sarasota is the gateway to some of the state’s most famous beaches, including Lido Key and Siesta Key. The sugar-white sands of the local beaches have always been a draw for both tourists and prospective homebuyers, but according to lo-cal eXp Realty agent Sandy Williamson they have been enticing even more buyers than usual over the past few years. “A lot of people are moving here from other places,” she said. “They want to avoid state income tax and they don’t want to live in all that bad weather anymore.” Although Sarasota is on the coast, Williamson said the fact that it lies about 20 miles inland helps protect it from flood waters during hurricane season.

Williamson noted that the housing market slowed down in the fall, following typical seasonal trends. But, home prices were still up over 15% year over year, ac-cording to Redfin. As we head further into 2023, Williamson said she expects to see the usual increase in demand, but buyers are less optimistic than they were a year ago. “Buyers are a little scared because the majority of the people moving here are going to retire soon or are retired, so they may be living off investments in the stock market and that has been a bit touch and go lately, so I think buyers might be a bit more conservative in their budgets and look at getting a mortgage instead of paying cash for their home and having all their money tied up,” Williamson explained.

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The housing market in Sarasota, Florida

Seattle, Washington

The Pacific Northwest and Seattle, in particular, get a bad rap for being perpetually overcast and constantly rainy, but Amy Breach, a local Keller Williams agent and member of The Hill Team, says that the stereotype isn’t accurate. “We have mild temperatures — it’s not too extreme in any direction and yet we have the beauty of all four seasons,” Breach said.

“Summers just come to life here. You can feel the energy shift during the summer when the sun is out and the whole city is just shining.” In addition to great weather, Breach also noted the wide variety of environments within a few hours of the city, from beaches, to mountains, forests and deserts. The area’s natural beauty as well as abundance of job opportunities has been attracting homebuyers to Seattle for years, and while many migration studies have noted that people have left Seattle for more affordable metros, Breach said that she has not noticed a major change in demand.

“There are always flocks of buyers from out of state and out of county.” Although Breach says the market cooled off recently as interest rates rose to some of their highest levels in decades, she said it had not turned into a buyer’s market and didn’t expect it to switch in the near future. “The market is more of a balance market now,” she said. “We have more inventory than we have had in years, and we have almost enough buyers to support that inventory.”

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The housing market in Seattle, Washington

Racine, Wisconsin

Marcia Ricchio, a RE/MAX Newport Elite agent, was surprised to find out that her market of Racine, Wisconsin, was one of the hottest housing markets in the country this past fall, according to Realtor. com. For Ricchio, the most challenging part of the housing market slowdown has been trying to bridge the gap between sellers, who are still expecting sky-high prices and multiple offer situations, and buyers, who are grappling with rising mortgage rates and mounting affordability issues.

Despite these challenges, Ricchio said homes that are move-in ready and priced right are still moving quickly and can still result in bidding wars. “We have to be a lot more diligent in pricing homes and getting sellers to understand that if they really want to sell, then my proposed price is a realistic number,” she said. “If they say yes and their home looks amazing, it is gone almost immediately.”

Located on the shores of Lake Michigan and between Milwaukee in the north and Chicago in the south, Racine has been attracting homebuyers looking for a bit more bang for their buck for years. “We have a downtown that is small but not too small with lots of activities and great restaurants, and then we also have the lake and some of the nicest beaches in the country — I just love this city,” Ricchio said.

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The housing market in Racine, Wisconsin

Middlesex County, Connecticut

Including the Greater Hartford metropolitan area, Middlesex County is home to some of the largest cities in Connecticut, including Middletown, East Hartford and the state capital of Hartford. Since the onset of the COVID-19 pandemic, the Connecticut real estate market has witnessed somewhat of a renaissance after slowing to a near halt in the mid to late-2010s. “During the pandemic, a lot of New York residents wanted to get out of the city and just have more land for themselves and their families,” Michael Sklutovsky, a local eXp Realty agent, said.

“Connecticut is close enough to the city that they could still work in the city once things opened up, but it also had the benefit of being more rural. That combination brought a lot of more business to Connecticut.” Despite this upward momentum, market conditions in Connecticut have cooled in recent months as interest rates have gone up on top of typical seasonal trends. “February is usually my slowest month,” he said. “But I feel it will pick up in the summer like it usually does. Supply is still short, so I don’t expect prices to go down too much. It is still a good time to sell.”

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The housing market in Middlesex County, Connecticut


This article was originally published in the February/March issue of HousingWire Magazine. Click here to read the full magazine
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